This is the second post of a two part series on prepaid services. Check out the previous post on prepaid services that are worth it.
In some cases, prepaying for certain services can result in great discounts. I prepay for pest control each year, and have never regretted it. However, the biggest risk with this is that the company will go under at some point — taking my prepayment with it and leaving me with nothing in return. Even with this risk, though, this particular service is worth it to me, since the company is well established in the community, and I get a solid discount.
Some prepaid services, though, do not provide as good a deal. Some prepaid services just aren’t worth the cost:
It seems like a stroke of genius: Prepay for your funeral now, and your survivors have nothing to worry about. Unfortunately, there are a number of pitfalls associated with this idea. First of all, if you die far away from the funeral home, you may not get a refund. Another issue is that inflation may mean that the materials used are sub-par, or that there is a reduction in services. Another issue is that of scams. There are a number of scams out there related to prepaid funerals, and you will need to be on your guard.
In some cases, you can pay a small monthly fee, and then get access to legal services. However, it is important to be careful. In many cases, this type of prepaid service will only get you a consultation or two, or only cover simple services like will or trust creation. These are things that are relatively inexpensive, and some of the simpler items can be done on your own. Make sure you understand what is covered. In a lot of cases, the really expensive services, like helping out at a trial, are not covered by prepaid legal.
Not too long ago, prepaid tuition was quite popular. You buy tuition units at today’s prices (or at a little more than today’s prices), and you save money later, since you won’t have to pay the inflated costs down the road. Unfortunately, there are so many caveats associated with prepaid tuition that it can turn into a nightmare. Prepaid tuition can only be used at certain institutions, and there is no guarantee that your child will be accepted to the school. Full refunds are very rare. You might be better off opening a flexible 529 plan that can be used at most schools.
A time-share is basically a prepaid vacation. You buy in now, and you are paying for future vacations. Unfortunately, these types of prepaid services are expensive, and they are hard to get out of once you are in. It can take years before you actually break even on a time-share. On top of that, you can usually only go to one spot, which can get boring. There are some programs that let you rotate locations, but they might be a little more expensive. And don’t forget the annual fees that come with some time-shares. You might be better off just to save up, or join a travel rewards program.
You always need to be careful when prepaying for services. Make sure you are dealing with a reputable company, and explore your options. In some cases, prepaying just isn’t worth it.
This is a guest post Miranda Marquit is a journalistically trained freelance writer and professional blogger working from home. She is a contributor for Mainstreet.com, Personal Dividends and several other sites. Miranda is not affiliated or endorsed by LPL Financial.